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Globalism, the Cure for War and Misery

By Christopher Farrell The end came swifter than expected. The Taliban regime is defeated three months after Osama bin Laden and his al-Qaeda network launched their terrorist attack on the U.S. Yet the war in Afghanistan is far from over -- let alone the battle against international terrorism. And there remains the daunting task of reconstructing Afghanistan's war-ravaged economy (see BW Magazine, 12/3/01, "Winning the Peace").

The challenge goes far beyond that landlocked nation's mountainous borders. Many of Afghanistan's immediate neighbors, as well as much of Africa and several economies once part of the former Soviet Union, are also trapped in grinding poverty and plagued with high levels of infant mortality, scant education, oppressed women, and rampant disease and malnutrition. Such countries are breeding grounds for terrorism and civil war, as well as the tragedy of child warriors. Economic development will not only improve living standards but it will also lessen for future generations the lure of suicide missions, car bombings, and other nihilistic acts of terror.

ELUSIVE ELIXIR. Figuring out how to transform poor countries into rich economies is tough. The track record of economic advisers over the past half-century isn't heartening. The search for growth's elixir has ranged from foreign aid to investment in machinery, from improving education to limiting population growth, from granting loans in return for reform to debt relief conditional on reform.

None of these policy prescriptions have had the hoped-for impact. "We've learned in the past few decades that there is no magic bullet that will make a country rich or grow," says William Easterly, economist at the World Bank and author of The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics. "Everyone," adds Easterly, "should be cautious."

Still, the U.S. and other developed nations are far from helpless, though the task will take time and involve many small steps. Rich nations can help pay for improvements to poor countries' decrepit infrastructures. International institutions like the World Bank can focus on the slow, patient work of rewarding institutions that are effective, such as schools that truly teach, and health clinics with doctors on the premises.

MORE INTEGRATION. Policymakers should always focus on the right motivation for growth. "If you can find openings to give people good incentives and opportunities, they will respond to the incentives to make their lives better," says Easterly. Or as Steven Landsburg put it in The Armchair Economist: "People respond to incentives -- all the rest is commentary."

The antiglobalism protesters got it all wrong

By further opening their borders, rich countries can create critical incentives for entrepreneurs in developing nations. Indeed, the antiglobalism protesters of recent years got it wrong. The genuine economic problem of the past two decades is not too much globalization but too little integration. The 3 billion people in developing nations with strengthening ties to the global economy have seen their average per-capita growth rate improve improve steadily from 1% in the '60s, 3% in the '70s, 4% in the '80s, and 5% in the '90s, according to a recent report by the World Bank, Globalization, Growth, and Poverty.

Rapid economic growth and internal stability reduced poverty in these developing nations by 14% from 1993 to 1998. Take Vietnam: Absolute poverty declined from 75% of the population in 1988 to 37% in 1998 as it built trade and investment bridges to other parts of the world.

BETTER ACCESS. Unfortunately, a group of countries has been pushed to the margins of the global economy over the past two decades. In Afghanistan, the Congo, and other extremely poor nations -- with combined populations of about 2 billion people -- trade declined, and the aggregate growth rate in the 1990s was negative. In many instances, life expectancy and school enrollments dropped. The number of people in absolute poverty rose 4%, to 437 million, according to the World Bank.

Long term, these countries will benefit from better access to the rich nations' large markets (besides the current trade in guns and drugs). The U.S., Japan, and the European Union should focus on sweeping away trade barriers against manufacturers, farmers, and merchants in the developing world. It's unsettling that the vote in the House to give President Bush fast-track authority to negotiate trade bills came at the price of hiking protectionist barriers against Africa's textile makers. This is a step in the wrong direction. Similarly, eliminating agricultural subsidies in the West would boost farm incomes and agricultural profits in poor countries.

Government policies that strengthen the economic attachments between rich and poor countries won't end poverty or terrorism, but such integration is a policy that the industrial world shouldn't ignore. Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over National Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BW Online

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